US-based AppHarvest is leveraging smart farming techniques as it aims to beat the competition by growing more tomatoes, cucumbers and other fruit and vegetables with fewer resources.
Future Food Finance caught up with Jonathan Webb, the founder and CEO of one of the world’s biggest indoor farming companies.
AppHarvest, based in Kentucky, in the Appalachia region, is implementing progressive farming techniques as it looks to take advantage of its location and weather trends to produce more tomatoes, cucumbers and other foods with fewer resources than its rivals.
In the interview with Future Food Finance founder David Stevenson, Jonathan Webb, CEO and founder of AppHarvest, describes the sheer scale of AppHarvest’s operation, notably its three-million square foot indoor farm “being almost twice as big” as Amazon’s biggest distribution centre.
Webb also pulls no punches in hitting out at current farming practices as run by “dirty, agriculture producers” using “harsh chemicals and atrocious labour practices.”
He also talks about the virtues of having Martha Stewart as a board member, describes the reasons AppHarvest went public via a $475m (£347m) SPAC deal, and talks about getting its products on supermarket shelves.
David Stevenson: Jonathan, I just thought we’d set the scene, if you could just give us a sense of the AppHarvest proposition? What’s so unique about what you’re doing and then we’ll talk a little bit more about what you’ve chosen to do?
Jonathan Webb: Yes, so AppHarvest is set out to build some of the world’s largest controlled environment agriculture facilities, and we’re building them here in the US, in the heart of central Appalachia, in the region we’re in which was really known as coal country here in the US.
So most of the coal mines in the US really resided in Eastern Kentucky, up into West Virginia. Over the last 10 years many to most of those mines have shut down but we’re in this region because there’s already the infrastructure of roads and power lines.
We have high-speed internet that we can bring in and the access to markets, so we can get to about three-quarters of the US market in a one day drive from this area.
So what we’re doing and the way we’re doing, it is very important but where we’re doing it is equally as important and that combination is what makes AppHarvest fairly unique at the moment.
DS: Talk us through what you're doing because I suppose many of us have got an image in our minds. I suppose two models, which is one the kind of greenhouse model on one side.
Then you’ve got another model which is the kind of, we’ve seen this new model of vertical farming, we’re seeing that emerge even in the supermarket, people are beginning to put, you know, vertical sections in supermarkets. Where are you in that, talk us through this controlled environment model?
JW: Yes, so my background was building large scale solar, so I was a part of building some of the solar projects in the US before founding AppHarvest, and we’ve tried to say that this is really the third wave of sustainable infrastructure. You know, 20 years ago in the US it was renewable energy, 10 years ago it was electrical vehicles and right now it’s controlled environment agriculture and what’s unique.
So big picture first is the thesis is that most fruit and vegetable production around the world will, at scale, come indoors. With climate disruption, with a pressing need to be water efficient and land efficient, we have to use technology, we have to use infrastructure and we have to grow in a controlled environment.
So what makes us different than some of the other models? One is scale, so we’re building really big. Our first facility was almost three million square feet, we have two other facilities under construction.
To put that in comparison I believe that first facility is almost twice as big as Amazon’s current largest distribution centre.
JW: So it’s large but we elected to use a glass structure, and again my background was in energy so I’m looking at, you know, what’s the most efficient and effective way to grow fruit and vegetable which is ultimately just energy for the human body. With the glass structure, you can capture the sunlight first then only add the LED, the micromole light that you need that the sun’s not providing.
In addition, we collect all of our rainwater, so here in central Appalachia. A lot of the US is getting drier. So look at California drying up, the southwest of the US drying up. Five of our wettest year on state record have been in the last 25 years, well in the last several years we’ve had record rainfalls. So we’re able to capture all that rain on our roof, put in a retention pond, collect it for several months and then we have several months of freshwater supply.
So what makes us unique is one, scale; two, I believe we’re the only facility of this size to run completely on recycled rainwater, which means we don’t pull any water from the city but we also don't have any agriculture run-offs. So rainwater has no sodium. All water from the ground, whether it is groundwater, city water has sodium.
That sodium builds up in the growing system, in the hydroponics and you have to flush it. So we not only run completely on recycled rainwater, we have a closed-looped system because our rainwater has no sodium we have no agriculture run-off that we have to flush out.
So there’s a lot of different reasons on the inside that are fairly similar and, you know, I’m a huge fan- I try to say no one in this industry to me is a competitor.
Our competitors are dirty, agriculture producers growing with harsh chemicals and atrocious labour practices that frankly have no place in society going forward, as we rebuild agriculture. I look at everybody else as a colleague.
So, you know, what we’re doing to control the environment is the same others are doing which is industrial sensors, software, you know, using lighting and humidity controls to control that environment. Ultimately we’re trying to optimise for the plant, we want to give that tomato plant or cucumber plant or leafy green the exact climate it needs year-round so it can optimise and grow.
So we’re able to do that in a natural environment where we still use bees to pollinate and we still use fresh rainwater but we also have the technology around us to control the environment.
DS: I just want a think a bit more on that, it’s very interesting. So are they all closed loops? So it sounds like there’s a closed loop on water. Is there a closed-loop on? And it sounds like you don’t have some of the normal kind of nutrient, rich run-offs that a lot of farms do. Is all your energy at closed-loop or do you have to bring in electricity?
Obviously you’ve got solar but do you have to bring in electricity as well, is that a closed-loop, how does that work?
JW: Yes, so for us 95 per cent of a fruit and vegetable is water. So that’s the most important thing long term when we talk about resilient agriculture, sustainable agriculture is growing with 90 per cent less water, which we do, and then utilising that water resource in a closed-loop system.
The energy, we’re getting directly off the grid and we’re working with our local utility partners here and we’ve tried to message, it’s really similar to electric vehicles, you know? We’re going to have an energy demand but we’re moving under the assumption that the grid will continue to get clean over time and there’ll be more renewable resources. We’re working to work with our utilities to build solar that would supply our facilities but we do not have a micro-grid onsite, we don’t have energy onsite, it’s off the grid.
Over the next decade, you know, I would say controlled agg is in the same boat as electric vehicles where, you know, the electric vehicle itself is only renewable assuming the resources where they’re getting the electricity are renewable. We’re under the same boat where, you know, we’re working with our utility to ensure that solar is built but ultimately we’re a consumer of electrons off the grid.
DS: The only reason I mention those because I was looking at a big UK project in East Anglia, and what they’re using is they’re using CHP(Combined Heat and Power) to warm up, and they’re doing tomatoes so it’s a specific thing, but they’ve got big tomato greenhouses and they’re using the kind of heat transfer from actually, I think, a sewage plant actually. And they’re using that to heat things up.
You’re obviously thinking about solar next step, is that the kind of thing where you’d like to move the business with that energy input?
JW: Yes, it’s a possibility. I mean there’s CHP. Absolutely because you can use the heat, you're right, and there’s multiple forms that you can use CHP onsite to not only create electricity but to create heat in the winter, and that’s something we’re certainly looking at.
For us, you know, we do think the simplistic long term solution is really, you know, getting electrons off the grid and making sure that our grid has renewable resources but, you know, in more remote parts of the world whether it be Africa or certain parts of India or even maybe China, you can build a micro-grid.
So, again, I mean pretty simple, build the micro-grid with battery storage and solar and you can power all this. And that’s why, you know, we’ve had a lot of interest from different political parties here domestically but also the UN Security Council came to Kentucky for the first time in our state history, and if you look at what we’re doing it meets so many of the sustainable development goals. And we’ve tried to say, you know, people are asking, “Well what’s the IP, what’s?"
I mean our IP is really navigating the complex industry and pulling it together it’s kind of like clean energy 20 years ago. We went for this moon shot and it was all these investments and a new idea that’s going to just save the world of energy, and what we ended up getting to was actually we just need to build a lot of wind and solar.
And it’s about execution at scale, and that’s what we’ve adopted which is, you know, the execution at scale model using proven cutting edge technologies that really aren’t bleeding edge off the edge, and combining those into a system.
But it solves many of the global problems in agriculture that we see and with micro-grid and energy storage, you know, you can do this in remote parts of the world and have food production online pretty quickly.
DS: What about price points? Let’s go through some of the products that you're doing, so you’ve got a lot of greens in there. I’m guessing you’ve got fruit, berry kind of fruits, I don’t know, you’ll correct me if I’m wrong. And how do they compare with other price points that you're seeing in supermarkets, are you a premium product, are you competitive at that scale?
For instance a classic example, blueberries, I mean even I have blueberries. But they usually tend to be imported, at least in Europe, they're flying them in. Are you competitive? How does the price points work out for the various products?
JW: Yes, I mean we backed into the pricing based on historical pricing over the last five years in the US, five to ten years, and we’ve made it abundantly clear that we do not want to raise prices for the average American, and that was our target.
So it’s pretty simple, I mean we could go to a grocery store, we could go to the large grocers and we could look at the various products from berries to leafy greens to vine crops, and we knew what we had to back into, and that was ultimately my job on building, and how do we get there. And how are we able to compete, there’s a couple of reasons.
One, if you look in the US about 40 per cent of fresh fruits and vegetables end up in landfill. So what we grow, about half – you know, call it 40 per cent, ends up in a landfill. That’s because it’s coming out of Mexico and it’s coming from California, both of which are trucking almost up to two weeks on a semi-truck, ten days to two weeks and it’s just- You’ve got your diesel cost, your trucking cost, your food waste cost.
So how are we able to redo this at the same price by building really big unit economics keeps our steel price low or our glass price low or our operating costs lower?
Also where we’re operating, so we run completely on recycled rainwater, we have no water cost. We have some of the lowest land costs in the US, and a living wage here that you can live in this region off a living wage at a much lower cost than what you could somewhere in California where California’s got energy prices three or four times that of what we have here.
So, you factor all that into a price per pound on a fruit and vegetable and because of our distribution of being able to get to 70 per cent on a one day drive, we can compete with what’s currently on the market. For a grocer, you know, it’s a premium product, for a consumer it’s a premium product but we have it around the same price.
You know, for a grocery you have none of the food safety concerns with food born outbreak, you don’t have to worry about labour practices and the atrocious labour practices we see in agriculture. You don’t have the harsh, chemical pesticides, you don’t have climate disruption that disrupts supply.
So this is, again, why our investors and early partners were just under this mindset that this is where agriculture is going and it’s going to take, will it take five, 10, 15, 20 years, we’ll see but, you know, it’s very similar to what renewable energy was 20 years ago and over the 20 years, you know, our belief is we’ll see tens of billions of dollars flood into the US agriculture sector, rebuilding farming with technology.
DS: Let me just ask you also about scale issue. You’ve obviously – I mean it’s a great kind of characterisation, twice the size of the biggest Amazon depot, they’re pretty big. Are you going to roll these out, are you going to have multiple versions of these or is this just the one that is going to keep making this one bigger? What’s the scale-up plan?
JW: We are isolating in this region for right now for the US market and we put in our SEC filings about 12 facilities over the next five years. So our goal is to just build rapidly, and these are really big.
I mean in the middle of a global pandemic we had 600 semi-trucks of materials go to a rural county in the mountains of Eastern Kentucky.
So it’s just a big, infrastructure undertaking and our job right now is to just try to stay up with the building process, and I do think, you know, through COVID, proving that we can stay safe but also stay on time, on budget, is what really got us the support we needed to ramp-up from here and really come out of COVID hopefully building at a much quicker pace.
DS: And apologies if this is a stupid question, but when are you likely to be fully operational?
JW: We’re operational right now and as of this week we’re in the largest grocers in the US, so Kroger, Walmart, Publix, Meijer and we’re on store shelves I believe as of yesterday or the day before, this week.
DS: Okay, fine, and then let’s talk a bit about- You’ve chosen, actually AppHarvest came up on my radar when it was venture capital-backed, I've sort of watched it for a while now. You chose to go into what I think is called a SPAC, with Novus Capital, just talk us through? Are you still, I don’t want to use the word early stage, because you’re not, because you obviously are operational, you have got product.
But, you know, you’re still earlier stage compared to some of the big food giants, let’s put it that way round. But you chose to go down the SPAC route, talk us through how that happened and what was the thinking there?
JW: Yes, so the concept there was we could have raised capital in a lot of different ways and not all SPACs are equal. So one, we elected to go public and we thought the SPAC made sense for us in a couple of reasons. But why go public now was we wanted the consumer to have full transparency, and if we’re going to talk about bringing transparency to agriculture in the US, where frankly there’s gag laws in every state that prohibit journalists like you from even going on farms.
So we wanted to flip that upside down and go, we want to be fully transparent with the consumer and there’s no better way to do that than to have the institutional rigour of being a publicly-traded company.
Then for the SPAC we looked at different ways to do this but ultimately we raised a vast majority of our capital in the PIPE (private investment in public equity). So we still did a roadshow with private investors, Fidelity lead the PIPE, the SPAC was a 100 million, we raised almost 400 million in the PIPE which combined for almost a total of 500 million in total proceeds, and for us not all SPACs are equal.
This team adds a lot of value to us, the SPAC team was a part of a lot of distribution in the wireless industry early on, so they understand logistics and building facilities. And it was something where we could, you know, get additional talent and capital through the SPAC while also going public.
So, for us it made the most sense. I can’t speak for everybody but, you know, why now is we really want to be fully transparent with the consumer and no better way to do that than to be public.
DS: Just on that question, the public question, are you marketing your product as AppHarvest? Is that your consumer-facing brand and I suppose, if it is, one of the questions I suppose is that building a consumer brand is an expensive business. You know, talk to the big brand companies, they’re multi, multi-billion-pound companies.
Just talk us through that kind of consumer positioning piece, how are you doing that? You’ve built the infrastructure, now you’ve got to get the consumers to you. What’s you're thinking there?
JW: Well we have Martha Stewart on our board and in the US I’m not sure there’s a bigger name than Martha. She’s been very active with.
DS: We’ve heard of her in the UK.
JW: That’s great, that’s great. We love her here, and she’s been very active with us, she tasted our first tomatoes earlier this month and, you know, we’re all holding our breath, does she like them?
And got great reviews and then David Lee, who is the CFO and COO at Impossible Foods and has been at Del Monte, just joined us as our President.
And, yes, it’s for us it’s going to be a long journey to build that consumer awareness but we believe it starts with a good product and right now, you know, you’ve seen brands like Impossible Foods and Beyond Meat that five years ago pretty much didn’t exist, I mean no one knew who they were, and now they’re a blockbuster name. I can go to, you know, I can go to a rural county in Kentucky and at a fast-food chain people know what Impossible Foods and Beyond Meat is.
So, it’s hard work but we believe if we have a good product at a fair price, the consumers are craving something new in food and agriculture, and it’s going to be our job to build that consumer awareness. But, yes, look for the hills and you’ll see it on our packaging and ultimately we want people to recognise- And that’s the shame here in the US that, you know, you go to a grocery store, 80 per cent, 90 per cent of what’s there is junk food.
I mean look at – I call it the way I see it, I mean Kraft, Heinz, Coca-Cola, Pepsi, I mean this is stuff we talk about heart disease, diabetes, and obesity being some of the top killers in the US.
Well these brands that dominate the grocery aisle are driving those three factors. So it’s companies like us that have to figure out how to create consumer awareness and excitement around fruits and vegetables, and we’ve got to push the junk off the aisle and get consumers excited about, you know, good, tasty fruits and vegetables.
DS: Just picking up on that theme before we wind up, in the UK we’ve got a very big kind of organic fruit and veg industry, growing quite fast.
So first of all are you organic and secondly quite a lot of the organic guys are doing straight to consumer distribution, you know, Able and Cole, there’s a couple of these brands in the UK that are cutting out the supermarkets and going straight to the consumer. That sounds like an interesting area for you, so are you organic and are you thinking of direct to the consumer at some point?
JW: We’re exploring all options, you know, obviously grocers moving fast and if anyone would have said, you know, 20 years ago that Sears would be bankrupt today in retail, I’m not sure many people would have bought into that. So obviously who knows what happens with direct to consumer in the way that it affects big box stores, but we’re monitoring it.
But as far as organic, we can get the organic certification in the US but we decided not to go that path and the reason is we want to partner with organic farmers. And we want to make it abundantly clear because we’re going to be so large at scale, we don’t want to push you off the store shelf.
In the US, what we want to push off the store shelf is the 90 per cent of pesticide-laden product that in the UK and Europe you have much different standards but here in the US, the USDA has said, you know, they did a study on cherry tomatoes and found 80% had at least one harsh chemical pesticide, 20 per cent had up to five harsh chemicals.
So for a mother or father putting food on the table for their kids, making a salad, you would think that’s healthy until you find out, oh, by the way you’ve got a lot of chemicals that have been dumped on your produce. So our job here is to really focus on the dirty aspects of agriculture, get that off the store shelf and be a conventional product, at really a premium quality and that’s what we’re focusing on for the coming years here in the US.
DS: I just want to finish off, I’d be interested in your views on some of the wider kind of food tech, aggtech scene. If I go down the list, you mentioned Impossible and Beyond, what’s your take on the plant-based protein and there’s another crowd saying cellular-based meat is coming?
Secondly, what’s your take on kind of next? Where do you think is the interesting aggtech, apart from you? I mean there’s lots of interesting stuff going on around vertical farms I mentioned but I suppose it’s possibly a competitor you’ve probably not – different markets. A lot of people talking about better data to the farmer.
Other people talking about plant biotech, you know, a very interesting area-Just looking at the wider food tech, aggtech scene, where do you think – as an expert, as somebody who watches it, where do you think is interesting?
JW: I’m obviously very big on plants right now and the fruit and vegetable market over the decades to come – we have a long way to go. I mean in the US the CDC (Centre for Disease Control and Preventioin) did a study recently and one in ten Americans eat enough fruits and vegetables. So to triple or quadruple the US market means we need three or four in ten Americans to eat enough fruit and vegetables.
That’s pretty startling, and, you know, so obviously anything working to solve that problem, which if you look at healthcare and healthcare costs ballooning in the US and potentially bankrupt our federal government. If we don’t make sure we’re providing everybody with nutritious, healthy options, we’re going to pay for it downstream one way or the other.
So anything that can be a part of that solution, and then the plant-based alternative proteins it’s- Look at the UN, they’ve said we need 50 per cent to 70 per cent more food by 2050, they’re predicting we would need up to two planet earths to grow that food the way we’re currently growing it.
You know, you look at the vast majority of living animals on planet earth right now are here to feed humans, we’ve dominated the planet and we don’t have a lot more room to expand. We don’t have a choice, we have got to figure out how to continue to create products that use far less land and far less water, and that can be technologies in a controlled environment setting.
You know, what I would say to the other companies working to grow plants the way we do, I don’t see anybody as a competitor. The problem’s too big, it’s the same way in automotive. You’re not going to have one automotive company retool the entire automotive around the world, you’re going to have 20, 30 companies doing it.
You’re not going to have one energy company powering the world, and you’re not going to have one agriculture company feeding the world. I don’t see anybody as a competitor, I see them as colleagues and I’m cheering them on because we need innovation, we need technology in agriculture and the private sector has got to lead and we’ve got to have capital funnelling in.
To me, I’m just excited by anything new I see and I’m a consumer of a lot of these different products and hopefully together- I was on the phone actually with the chairman of Beyond Meat the other day, you know, as they’re a publicly-traded company just trying to get advice, and I just wanted to make it clear like, I’m a huge fan of your product and we need you. Like, collectively.
And all these different companies out there, I look forward to seeing how agriculture can work together, I came from the wind and solar world where the wind and solar industry worked together to unite and drive the renewable energy market, and it was incredibly helpful for every company at every stage.
We in agriculture have to figure out, you know, how all the innovative companies are going to work together and rebuild our global food system because we don’t have a lot of time.
I mean the next 30 years we have rising middle class, we have a growing population, you have China and India that have 40 per cent of the world’s population with less than 10 per cent of the world’s freshwater. We’ve got to use technology at scale and all of these different companies and sectors that you’re talking about, personally excite me and I think we’re going to see a lot of different winners in a lot of different ways.
DS: The very last question, you just mentioned the word China there, if I were to pick a destination where I think you should probably go would it be China because as you’ve just said, they’ve got some pretty severe environmental implications, used to building at scale, bloody big market, ever tempted to maybe expand out of the Appalachians and head to China?
JW: Well we’re not, you know, we know we’re in the largest economy in the world and the largest agriculture economy in the world and if we get it right here, we’ve had global interest and if you look at the markets that need this type of solution.
China with almost 20 per cent of the world’s population and five per cent or six per cent of the world’s freshwater, India, 20 per cent of the world’s population, five per cent of the world’s freshwater, the entire Middle East who doesn’t virtually grow any fruit and vegetable right now, all of it’s imported. And then obviously Africa continues to have issues related to water and food.
So, you know, there’s large parts of the world that need technology and infrastructure in farming, and hopefully, we can be helpful in the global stage but either way it’s just going to become an inevitable outcome as we all move forward. We have to use systems like this to grow food.
DS: Lovely, thank you very much Jonathan.
JW: Thank you.